Wage growth has fallen to its lowest rate in four years, data revealed yesterday, suggesting a complete lack of inflationary pressure coming from the labour market.

The news will cheer the Bank of England's monetary policy committee which had feared that last year's spike in inflation would lead to inflationary pay deals this year. The figures came a day after consumer price inflation tumbled to an 18-month low of just 1.9%.

The Office for National Statistics said average earnings growth unexpectedly fell to 3.3% in the year to June, down from 3.5% in the year to May. That was the lowest figure since June 2003. Excluding bonuses, wage growth slowed to 3.4%, also a four-year low. Separately, the Engineering Employers' Federation reported that pay deals in its sector were steady at 3.2% in the three months to July.

"It is now clear that labour market conditions at the start of the year were sufficiently slack to prevent a pay surge and what some had feared might be the emergence of an inflationary pay-price spiral," said John Philpott, chief economist at the Chartered Institute of Personnel and Development (CIPD).

"And although the latest ONS figures show that the demand for labour picked up in the spring and early summer, conditions are set to soften again in the coming months as the impact of recent interest rate hikes starts to be felt."

The ONS also said that on the claimant count measure, there was an 8,500 fall in joblessness last month to 855,000 while on the government's preferred labour force survey measure there was a fall of 45,000 in the three months to June, giving a total of 1.65 million out of work. That was the biggest drop since December 2003. The LFS measure picks up those not working but not claiming benefit.

As a result the jobless rate fell back to 5.4% from 5.6% in the three months to May, the lowest rate in more than a year. The claimant count rate fell to 2.6% from 2.7% in June and 2.9% a year earlier.

Employment, too, rose to 29 million, up 93,000 to just short of a record high. The employment rate rose slightly to 74.4%, though it was lower than a year ago, reflecting strong growth in the workforce.

Economists suspect that the reason why wages have failed to pick up in response to inflation is that the workforce has expanded more rapidly than the demand for labour, through a combination of high levels of immigration and more older people and women returning to work.

"There still seems to be slack in the UK labour market so we don't believe wage growth will pick up in the near future," said Karen Ward, an economist at HSBC.

Ken Mulkearn, at pay specialists Incomes Data Services, said that the low average growth figure for average earnings disguised considerable variations.

Sectors including chemicals, wholesale and hospitality saw strong pay rises but were counteracted by weak growth in public sector pay, which rose 1.6% in the year to June.